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Calculate FV of deposits, annuities, amortize payments, rate of return, EVA

1- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?

2- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning immediately. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?

3- Your father has $500,000 and wants to retire. He expects to live for another 20 years, and he also expects to earn 8% on his invested funds. How much could he withdraw at the beginning of each of the next 20 years and end up with zero in the account?

4- Your father has $500,000 invested at 8%, and he now wants to retire. He wants to withdraw $50,000 at the beginning of each year, beginning immediately. How many years will it take to exhaust his funds, i.e., run the account down to zero?

5- Assume that you own an annuity that will pay you $10,000 per year for 10 years, with the first payment being made today. Your girlfriend's father offers to give you $45,000 for the annuity. If you sell it, what rate of return would your girlfriend's father earn on his investment?

6- What's the future value of $2,000 after 3 years if the appropriate interest rate is 8%, compounded semiannually?

7- Laiho Industries reported the following information in its annual report:

Net income  $7.0 million.

NOPAT  $60 million.

EBITDA  $120 million.

Net profit margin  5.0%.

Laiho has a depreciation expense, but no amortization expense. Laiho has $300 million in operating capital, its after-tax cost of capital is 10%, and the firm's tax rate is 40%.
What is Laiho's depreciation expense?
What is Laiho's interest expense?
What are Laiho's sales?
What is Laiho's EVA?

8- Last year Oliver Inc had a total assets turnover of 1.60 and an equity multiplier of 1.85. Its sales were $200,000 and its net income was $10,000. The CFO believes that the company could have operated more efficiently, lowered its costs, and increased its net income by $5,000 without changing its sales, assets, or capital structure. Had it cut costs and increased its net income in this amount, by how much would the ROE have changed?

Solution Preview

1- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning one year from today. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?
FV =5000*(1+9%)^2+5000*(1+9%)+5000=$16390.5

2- You want to go to grad school 3 years from now, and you can save $5,000 per year, beginning immediately. You plan to deposit the funds in a mutual fund which you expect to return 9% per year. Under these conditions, how much will you have just after you make the 3rd deposit, 3 years from now?
FV =5000*(1+9%)^3+5000*(1+9%)^2+5000*(1+9%)=$17865.65

3- Your father has $500,000 and wants to retire. He expects to live for another 20 years, and he also expects to earn 8% on his invested funds. How much could he withdraw at the beginning of each of the next 20 years and end up with zero in the account?
PV of annuity = 500000
n=20 years
r=8%
Calculate C.
Note this is a case of annuity due - I missed this ...

Solution Summary

The expert calculates FV of deposits, annuities and amortize payments.

$2.19